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Recently a friend informed me of the Treasury Department’s intent to hold a conference on what to do about the beloved Government Sponsored Enterprises--Fannie Mae and Freddie Mac. My friend, knowing of my background where I was responsible for directing a team of twenty extremely sharp individuals who analyzed the risk of a $600 billion portfolio of mortgage-backed securities backed by 7-million loans for a 12-year period, including the entire period of the S&L crisis, said he thought I should attend that meeting.

I told my friend that not only should I attend the meeting, I should run the meeting. And I told my friend that if I did, here is what I would say in my opening short and sweet statement.

Welcome everyone. I am glad that we all could gather here together today to finally begin addressing what to do about the “true culprits” responsible for taking all the world’s economies to the brink of disaster leading to the Greatest Recession Since the Great Depression.

For the last two years our Government has held one hearing after another, passed the largest financial reform bill since the Great Depression of the 1930s, and yet it is only now that we are getting this opportunity to address and fix the real problem behind our current ills. This is a big challenge, but hopefully, today is the first step in doing just that.

Over the last two-years we have heard a lot of misguided talk about the evils of mortgage-backed securities, derivatives, the banks too large to fail, and many esoteric financial products that had nothing to do with our current crisis—at least in comparison to the role the GSE’s played in causing the problems at hand.

Let me be clear before we begin that I see nothing wrong with the general concept of Mortgage-Backed Securities—MBSs simply provide a financial vehicle for increasing investment in a nation’s housing, which does not necessarily have to be a bad thing. Even so, something needs to be done about the MBS industry within the United States.

What went wrong in our mortgage-backed security industry was a result of the misguided concept of Government Sponsored Enterprises, poor implementation, and poor regulation.

The term Government Sponsored Enterprise is truly antithetic to our nation’s history and creed. Fannie Mae and Freddie Mac, operating under the protection of the Government, neither worked for the Government nor the people of the United States of America.

Although stockholder owned, the executive management of the GSEs were populated with political cronies with little true knowledge of housing in America or the potential ramifications of their erroneous decisions.

As a wise man once said in a sermon, ‘You cannot serve two masters at the same time’. And given this two-master dilemma, Fannie Mae and Freddie Mac chose not to serve the Government or public, but instead to use their oligopoly-like power for their own personal executive rewards.

The problem with our beloved GSEs is not a new problem. Fannie Mae and Freddie Mac have been abusing their Congressionally-legislated power for more than 25-years—stretching all the way back to the period after the recession of the early 1980s. Through the purchase of their own securities, trading on inside information, mishandling long-term mortgage rates to their advantage, and lending outside of standard fiduciary guidelines, the GSEs leave us with no choice now.

Although most of the recent housing debate has only focused on the last of the issues just mentioned, any one of the other issues by itself would be enough to justify the actions that hopefully we will begin taking as a result of this conference.

It is time to abolish Fannie Mae and Freddie Mac. Sad to say, but we have no other alternative but to have the Government take over the responsibilities of the GSEs and clean up the mess they have left our country.

My colleagues know full well that I propose to establish a new Government entity called the Federal Mortgage Security Guaranty Corporation that will integrate all of the GSEs current responsibilities with those of the FHA, VA, and Ginnie Mae. And as part of that process, we will reduce the “combined, bloated staffs” of all those entities by more than one-half.

Due to the heady responsibility of managing more than $5 Trillion of mortgage-backed securities that will have the Full Faith and Credit Guaranty of the United States behind them, we will set up a procedure to choose someone to run this new agency with qualifications at least as good as the Chairman of the Federal Reserve or our own Secretary of Treasury. Mortgage debt in the United States has grown to the point that even slight changes in rate policy can significantly affect our nation’s economy.

Moving forward, the new agency will only be authorized to guaranty new loans for the “primary residents” of homeowners that can meet standard, specific, and strict guidelines, such as 30% mortgage debt/income or 38% total debt/income ratios. The new agency will only be authorized to guaranty fixed-rate loans and a new state-of-the-art “underwriting system” will be developed to support the new agency’ responsibilities.

Since the recent period of globalization started nearly thirty years ago, inflation in the United States has been tamed and there is every reason to believe that should hold true for a fairly long period moving forward.

For that reason, I fully expect the first dictum from the leader of the new agency will be the establishment of a firm, long-term 4.0% fixed mortgage rate for any American citizen who is willing to sign their own “full faith and credit guaranty” on their primary home. No such loan will be issued for more than the current outstanding mortgage debt of such a homeowner. Anyone who signs such an agreement and fails to back the agreement will be banned for ever obtaining another such loan.

As we all know, this dictum will not only stimulate our economy without Government spending or taxation, but it will also reward those people that are “truly responsible” for saving us from what our previous Secretary of Treasury liked to refer to as the brink—and that is the American homeowner who has continued to meet his or her mortgage obligation despite knowing the true value of the home.

As one of the chief advisors to the President recently said, “every crisis offers opportunity”. I believe today’s conference is the beginning of a new opportunity to help us move forward as a nation in a more fiduciary responsible manner than we have in the past.